Can Bitcoin be Garnished by Judgment Creditors?

Can Bitcoin be garnished by judgment creditors? In today’s’ fast and expensive world, people often take out loans to meet their specific needs.

Though a lot of them can successfully pay off their loans and other legal obligations as well such as child support and alimony there are a lot of them who default on the repayments.

In such a situation you may be worried about your investments, especially your crypto investments, and wonder whether or not the judgment creditors can garnish your Bitcoin or crypto just as they can garnish your wages and income.

Well, this is a complex subject and needs a deeper look and in-depth understanding.

This is primarily due to the fact that people often possess some common misconceptions regarding Bitcoin and other crypto coins and believe in the myth that these digital currencies can never be garnished.

Well, in fact, this is not entirely true. There may be some specific instances and circumstances when the judgment creditors can garnish Bitcoin and other crypto coins.

This is easy when the judgment creditor, judgment debtor, and the crypto exchange all belong to the same jurisdiction.

Therefore, there is no reason to believe that crypto coins such as Bitcoin is the ‘holy grail of asset protection.’

These can actually be garnished or even seized by a judgment creditor.

Sadly for the debtors, their crypto may not be as protected as they believe it to be.

This is in spite of the fact that their crypto holdings are confidential assets and all transactions made are anonymous and it is not required to disclose them to the judgment creditors.

This article will tell you why and clear all your doubts and misconceptions.

Can Bitcoin be Garnished by the Judgment Creditors?

Can Bitcoin be Garnished by Judgment Creditors

Cryptocurrencies are typically secured by cryptography which makes these digital currencies hard to fake or double-spend.

These virtual currencies are decentralized and not issued or regulated by any central authority.

All these features of cryptocurrencies render them theoretically immune to manipulation.

However, this also makes it immune to government interference.

This is the main reason there is a growing interest noticed among people in parking cash in crypto.

However, this belief of complete protection or immunity does not hold up in practice.

Crypto coins can be garnished by the judgment creditors just like any other bank account or investment asset.

However, you may wonder whether or not crypto coins or your Bitcoin can be seized or garnished by the judgment creditors given the fact that the transactions made in crypto are immutable and anonymous.

Well, in a few specific circumstances a debt collector having a monetary judgment can garnish your Bitcoin or crypto from your digital crypto wallet.

The debt collector may also do the same with any US company or a third party that may hold the crypto coins for the benefits of the judgment debtor.

Now you may ask whether or not you can protect your crypto assets from being garnished by the judgment creditors if you hold them with a trust.

Yes, your crypto coins can be held by a trust provided it is allowed according to the terms and conditions of the agreement of the particular trust.

Well, in that case, you can protect your assets from being garnished by the judgment creditors if the trust is drafted correctly because it will be protected just like the other assets of the trust and its beneficiaries.

However, in order to garnish or seize crypto coins the creditors along with their attorneys need to be creative and efficient as the debtors themselves to locate the coins and the address and then execute the judgment against the debtor.

The debtors usually know more than one way to store their Bitcoin and other crypto coins in such places that will be impossible for the judgment creditors to reach.

One of the latest trends followed by them is keeping their crypto coins in ‘plain sight.’

There are thousands of different crypto coins available out there to trade with or invest in but the most popular ones among them are Bitcoin, Ether, and Litecoin.

These coins are comparatively stable as compared with other types of crypto coins.

It is for this reason the judgment creditors more commonly garnish these coins as compared to other small-cap Altcoins and meme coins held by the debtors.

Ideally, the crypto coins are stored in a digital wallet, which actually does not hold any coins in it.

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However, the judgment creditors typically go for the contents of the wallet which is the private key.

Though crypto, blockchain technology, and the concept of wallet are new, there is no need to make any changes in the garnishment proceedings and statutes to get hold of Bitcoin and other crypto coins by the creditors based on the monetary judgment.

Typically, garnishment proceedings typically are of two main types of statutory provisions. These are:

  • Garnishment of individual earnings and
  • Garnishment of property other than private earnings.

Based on the features, garnishment of Bitcoin and crypto coins falls under the second type of statutory provision.

This is because in most of the jurisdictions there is no precise definitional perimeter of ‘property’ in the garnishment statute.

Therefore, crypto coins, as such, can easily be included under this category.

Now, there may be instances when a judgment debtor can be ‘judgment proof’ for a long time and by the time things may take shape personal income and property may ‘dry up’ and nothing may be available to garnish.

Moreover, when caught chances are that the judgment debtor may fail to identify holding any crypto wallet or cons during the proceedings.

In such a situation, the judgment creditor will turn towards the crypto exchange that is identified to have been used by the judgment debtor.

This can be done easily by the judgment creditors by scrutinizing the bank account statements of the judgment debtor and/or by scrutinizing the records and documents obtained via subpoena.

When the crypto exchange or the ‘garnishee exchange’ is identified by the judgment creditors they can obtain an order for garnishment.

This will enable them to secure the crypto held in the exchange based on the second statute of garnishment proceedings.

This means that the crypto assets will then be considered as the property other than personal earnings as the asset of the judgment debtor.

Garnishing crypto in this process is relatively easy because in most of the times the crypto exchanges cooperate with the judgment creditors just to avoid getting involved in legal hassles and tarnishing their reputation.

Apart from answering all the questions and passing all the information related to the judgment debtor that helps in further investigation, they even issue the check for the garnished amount.

Later on, when the crypto exchange receives the garnishment order they can convert the crypto to issue the proceeds in US dollars.

However, the most challenging part of this process is identifying the exact crypto exchange on which the judgment debtor holds an account, and as said earlier, it is the bank statement of the judgment debtor that may lead to it.

And, in some instances, in addition to garnishment order, the judgment creditor may also need to issue a separate subpoena to the crypto exchange.

This will help them in their records, statements, as well as in confirming the balance of crypto coins in the wallet held by the judgment debtor.

Therefore, it can be said in simple words that there is no reason to believe that this ‘new’ way to hide your assets will be successful.

Looking at its increasing use, it is highly likely that the judgment creditors will frequent this place just as you will do.

Understanding Bitcoin

Before you delve deeper into the subject it is better to understand a few things about Bitcoin or cryptocurrency first.

Cryptocurrency is a virtual asset class and the most popular of them all is Bitcoin.

These currencies are designed to act as an alternative currency and a new payment system.

All transactions involving crypto are recorded on an online ledger that is available publicly.

This is called blockchain and the records on it are immutable.

Each of these transactions is validated by different nodes or miners spread worldwide.

When you buy Bitcoin, you will need to have an online personal wallet that will act as the ledger of the crypto transactions and balances.

You will get a private digital key which is actually a string of characters that will allow access to your wallet and control it.

It is only the holder of the private key who can make transactions whether it involves withdrawing the crypto or making any active payments using the coins.

And, once such a transaction is made, validated, and entered in the blockchain it cannot be canceled or reversed.

It is this private key that the judgment creditor will want to have in the first place from the judgment debtor to move the coins from the wallet.

Ideally, this private key is the most important element in crypto and is known only to the user.

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If it is lost or compromised the coins are lost, forever.

That is the main reason that the judgment creditors rely on the information passed on by the debtor and his or her private keys more than anything else.

Also, the records of the blockchain are available to the public.

This means that the judgment creditors can view the digital address of the recipient of funds but it is not easy to identify the owner always.

Since a considerable amount of money can be made through Bitcoin and other crypto coins, these assets are not exempted from being garnished or seized in order to collect the amount due.

And, that is why it is required that you disclose your holdings of all crypto coins including Bitcoin fully and honestly when you intend to file Chapter 7 bankruptcy.

Disclosure to Judgment Creditors

You may follow the myths and misconceptions and not disclose your Bitcoin or crypto accounts to the judgment creditors but, believe it or not, failing to do so may result in some serious legal consequences.

If you are planning for bankruptcy, such lacunas may even result in a denial of bankruptcy discharge.

The judgment creditors as well as bankruptcy trustees can scrutinize your financial records during the investigation process and find the truth.

It is just a matter of effort and time for the judgment creditors to discover your crypto or Bitcoin accounts during the post-judgment discovery process.

All your financial records and assets will be scrutinized by the judgment creditors and there will be no escape.

In addition to that, the judgment creditors may also ask you legally to disclose the passwords to your crypto and Bitcoin accounts and even testify for those third parties that may hold your crypto wallets.

If, in case, the matter is taken up in the court, you may even be held in contempt of court if you do not testify fully and truthfully about all your crypto holdings.

Therefore, it is good for the debtors to testify under oath and disclose the location of all their investments and assets along with their value and nature.

This may also include the securities accounts, crypto ownership, transaction history as well as your bank accounts.

Tools Used by Judgment Creditors

The judgment creditors have a lot of different tools in their kitty to collect money from the judgment debtors.

Garnishing is just one of these collection procedures which is commonly used by the judgment creditors.

In this process, the judgment creditor can intercept debts or levy upon a third party or the ‘garnishee’ who owes to the judgment debtor.

When the writ of garnishment is served the third party is required to pay the money owing to the debtor to the judgment creditor.

These writs of garnishment are usually served on banks since the bank is typically indebted to the debtor for the quantity of deposits.

As and when the debtor demands, the bank is required to pay the money held in the account of the debtor to the debtor himself or to any other third party that may be chosen by the debtor.

This payment can be made in any way convenient such as authorized online payment or through checks.

The judgment creditor can therefore garnish the debts of the bank by seizing the account of the debtor because, according to the law, this is actually a debt owned by the bank to the debtor for the demand deposits.

However, if the judgment debtor holds the coins or digital keys privately in a self-storage device, the crypto cannot be garnished.

This is because there is no third-party servicer involved in it that may owe a debt to the judgment debtor.

In such situations the judgment creditor will have a hard time discovering the private records of the debtor and accessing them to find the crypto ownership and transaction history.

But, when there is a third party exchange involved in holding the crypto coins it is much like the relationship between a bank and the customer, albeit with some difference.

This is in terms of the agreement of the exchange to liquidate the crypto coin for the customer upon request.

But largely, the relationship between an exchange and an account holder resembles the relation between the bank and the customer making things a lot easier for the judgment creditor to garnish Bitcoin or other crypto coins.

Still, there are some material ways in which the agreement between the customer and a crypto exchange is different from the traditional agreements made between the customer and a bank.

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This may be with regards to the governance of the demand accounts of the customer with the banks.

This may also be in terms of the legal history and status.

While the banking account agreement and relationships in every state defines the legal history and status as well as its regulation, there is nothing as such available with the crypto accounts maintained with an exchange.

At the most, it is likely that the court will find adequate obligation of the crypto exchange to the customer that may warrant garnishment of the account that is owned by the judgment debtor.

However, this is only possible provided that the particular account of the debtor is exempted otherwise from processing according to the state law as applicable.

Offshore Accounts

Things are a bit different, if not difficult, for the judgment creditors when they have to deal with offshore accounts.

In fact, it is practically impossible for the judgment creditor to take Bitcoin or crypto if the judgment debtor uses foreign crypto exchanges.

It needs no explanation that a judgment creditor from the US will not be able to use the court order in some other region to influence a crypto exchange in that region protected by the law of that region in order to garnish Bitcoin or crypto.

Therefore, if a crypto account is operated overseas, domesticating a judgment in that country and then using their rules to go after a crypto exchange operating in that country is not at all a feasible decision.

It is not only an impractical move but is also quite an expensive one to make.

Other Ways

There are different ways in which a judgment creditor can take your Bitcoin and crypto coins if they have to.

These collection strategies are practiced by the more aggressive judgment creditors when they want to follow other ways than garnishing the crypto of a judgment debtor.

However, not all judgment creditors may follow the same processes as mentioned below because it will depend on the rules and regulations of the specific jurisdiction.

In some regions, California for example, the judgment creditor may obtain a judgment lien that will give the power to levy on records of the crypto coins maintained at the specific crypto exchange account of the debtor.

In some cases and situations, the judgment creditors can obtain a court order that may instruct the specific crypto exchange where the debtor has his account to divulge the information regarding the digital currency owned by the debtor.

The same order can be applied for other crypto services as well who provided some sort of services to that particular debtor in question.

Depending on the situation and the type of court order obtained, a debtor may also be compelled to disclose the passwords or private keys under oath for the crypto held privately and not on a crypto exchange or any other third party.

However, such types of orders are pretty difficult to enforce by the judgment creditors.

Then, the judgment creditor can also get hold of your bank account and review the records.

The creditor will typically look for a large transfer of funds from your bank account and its destination.

If it indicates that the funds have been transferred to a crypto exchange or a third party exchange or in any way related to crypto transactions, you may be coerced to divulge the information and your Bitcoin or crypto coins may be garnished.

However, these practices are all followed especially for large judgments.

Typically, for smaller judgments, the creditors may not be interested in putting such a huge effort to garnish Bitcoin or crypto accounts.

This is mainly due to the uncertainties around the collection and little case law about crypto coins and Bitcoin.


Now, after reading this article you know that a judgment creditor can garnish a Bitcoin wallet based on the situation.

It is because it is hard to cover bulky Bitcoin and other crypto coin purchases, especially when you use the money in your bank account.